Eutility's weekly news

Alinta returns to coal power with $1.2b takeover of Loy Yang B

Alinta returns to coal power with $1.2b takeover of Loy Yang B

Chinese-owned Alinta Energy has demonstrated the value still to be had from coal-fired power, stumping up about $1.2 billion to buy the Loy Yang B
generator in defiance of those proclaiming the death of the fuel.

The deal to buy the plant that supplies about 17 per cent of Victoria's power needs was first reported by Street Talk and was confirmed by Alinta on Thursday afternoon.

It comes just as federal and state energy ministers are due to meet on Friday to discuss the government's National Energy Guarantee policy,
which puts extra focus on the reliability of electricity supply and could underpin further investment in extending the life of coal power plants.

Alinta managing director Jeff Dimery said the purchase of the circa 1000-megawatt plant from France's Engie and partner Mitsui & Co would allow
the retailer "to compete with the big guys" under a NEG policy.

The utility's three larger competitors, AGL Energy, Origin Energy and EnergyAustralia, all own large coal power generators.

Competitive prices

Mr Dimery said the acquisition would have a payback period of less than 10 years and would enable Alinta, Western Australia's biggest gas retailer,
to provide lower-cost power to its growing east coast customer base than it could otherwise.

"We're very keen to grow our business on the east coast of Australia and the only way we can do that is providing them with competitively priced energy,"
Mr Dimery said, adding he didn't expect a customer backlash as a result of Alinta moving back into to coal-fired power.

"The reality is that what we have seen with the closure of coal-fired power stations brings into stark focus the cost of energy for mums and dads.
That seems right now to be far more important for consumers."

But Greens MP Adam Bandt said the decision to buy the plant would come back to haunt Alinta.

"Buying a brown coal-fired power station in 2017 makes as much sense as investing in a chain of Blockbuster stores," Mr Bandt said.

"Alinta's board will rue the day they dropped over a billion dollars on what will quickly become a stranded asset."

The conditional binding deal brings to a close a protracted sale process for Loy Yang B, with sale adviser Rothschild having invited indicative bids in May.
The move to sell came from Engie's corporate decision in 2015 to exit coal power and switch to cleaner energy sources. The French major closed
its other Australian plant, the older and dirtier Hazelwood, in March.

Engie chief executive Isabelle Kocher said the sale would cut the share of coal in the group's global generation portfolio to 6 per cent from 13 per
cent at the end of 2015. The deal, which is due to complete by the March quarter of 2018, should reduce Engie's debt by €666 million ($1.3 billion).

Alinta had exited from coal-fired power with the closure of its Flinders power plants in South Australia, with the last generator shutting down in
March 2016 after suffering heavy losses amid the growth of wind power.

"If there's one company that should know a lot about the risks to coal-fired power stations when you have high levels of solar and wind it's Alinta,"
said Grattan Institute energy program director Tony Wood.

Carbon reductions

"My conclusion would be this has been a very well thought through, well informed decision by Alinta. They will still have to be part of an energy sector
that will have to meet at least 26 per cent [carbon emissions] reductions by 2030."

Loy Yang B, which Engie describes as Victoria's newest and most efficient coal generator, is fuelled with coal from the AGL Energy-owned Loy Yang brown
coal mine, the largest brown coal mine in the country.

The plant's two units, which started up in 1993 and 1996, could run until AGL is due to close the Loy Yang mine in 2050, or even longer, Mr Dimery
said.

All 151 people employed at Loy Yang B will transfer to Chow Tai Fook.

Engie is retaining its Simply Energy retailing business in Australia. It said it still has 1800 employees working in low-carbon power production and
retailing across Australia and New Zealand.